Highest Interest Rates and Variable or Fixed?

[blueshoes]

I am interested in whether anyone with a property investment lived through the high interest rates of the 70-90's. I think it was around 18% at one point.

I know some people who had homes around that time and didn't do too good.

Does it put you off having a variable rate now?

Cheers
Blue shoes

 

[nhg]

I am interested in whether anyone with a property investment lived through the high interest rates of the 70-90's. I think it was around 18% at one point.

I know some people who had homes around that time and didn't do too good.

Does it put you off having a variable rate now?

Cheers
Blue shoes

I'd be curious to know what strategy those investors employed at the time. Drop it and run?

 

[blueshoes]

Well, yes. They didn't hang onto it.

 

[Aaron Sice]

the RBA had rates at 18% - most banks were 21-22.5%

 

[blueshoes]

wow!

Can you see this ever happening again, I wonder?

 

[vaughan]

I am interested in whether anyone with a property investment lived through the high interest rates of the 70-90's. I think it was around 18% at one point.

I know some people who had homes around that time and didn't do too good.

Does it put you off having a variable rate now?

Cheers
Blue shoes

Counter-intuitively, people were scrambling to get into the market, at least in Sydney. (My brother was one of them.) Worried that the rates might go higher and they'll be priced out...

 

[vaughan]

wow!

Can you see this ever happening again, I wonder?

Everything will happen again.

 

[blueshoes]

yes,
Ouch
but the question is would it make you want to fix?

 

[Deltaberry]

What about dinosaurs resurfacing?

 

[ok180]

wow!

Can you see this ever happening again, I wonder?

Not for a long time. The costs of living are very different now to what they were back then. When we were paying 9% five or six years ago that felt like what 20% would have back in the day.

 

[Angel]

I was alive and well in those days. For most of the time when we were paying off our PPOR, interest rates were 12 to 14%. They were only ever higher than that for a year or so, as far as I remember.

We know of people who fixed at 15% for ten years. That is a big ouch.

In our case, Suncorp offered for us to fix for one year I think it was at about 16 or 17%. At the same time the govt brought in a short-term relief for low income earners or families or whatever we were classified as but by the time it got off the ground, the rates started falling again.

We were on one pathetic income, with two young kids (one with a disability) and I was too stressed to work anyway. Hubby was given a second job (approx. two hours a night) working for one of the company directors in his second business, which was all we needed to pull us through.

By the time we had gotten used to the higher payments, they started to reduce again. We were not investing in those days, but we paid off a 30 year mortgage in 12 before we started using the equity to purchase new cars and other goodies.

Mind you 16% interest on a $68,ooo mortgage with a $20K per annum income wasn't as scary as what FHBs are spending these days.

 

[Peter_Tersteeg]

Can you see this ever happening again, I wonder?

I'm sure it will happen again, but not in the foreseeable future. In the last 5 years or so, interest rates got as high as around 10%. At that point the economy almost ground to a halt and the RBA quickly reduced the rates to stimulate the economy.

In the current economic environment, rates above 10% would be far worse than the effects rates had in the 80s & 90s when they were 20%. Eventually the economy will be completely different and those sort of rates might become necessary, but it's not going to happen any time soon.

 

[Rolf Latham]

Actually

Real rates are higher today than they were in the 18 % regime in the 89/90s

Much of the lending was capped at 13 %

Back then wages growth and inflation were running at double digits.......


ta
rolf

 

[joanmc]

I remember that year. Our rate went from 14% to 18% and I got pregnant with child 1. Our mortgage payment was $140 per week and our take home pay was $260! Two of our neighbours lost their houses that year because they were unable to cope. I always look back on that time and think if we can survive that we can survive anything! Some weeks we had only $20 for food and hubby's family would drop vege boxes for us.

We did not fix though. I admit to being tempted but I was more scared of being stuck at such a high rate than of it going even higher. I think there was a charge for fixing too, which we just didn't have the money for. we were with Westpac at that time.

I sincerely hope that it never goes up that high again.

 

[Angel]

OMG Joan, your family was even poorer than ours! Our payment went up to $220 a week and Hubby's take home pay was about $360 a week.

We capitalised the fixing fee into our loan. Fortunately we were ahead on our repayments so it was not an issue. I was too scared that the payments would go even higher. I had never heard of fixed rates before then and I had no comprehension that they would ever go back down until they really did.

Once the rates dropped, we kept our repayments at $200 a week and the length of the loan vanished before our eyes. I used to love the statements arriving every three months. Over the following year, there were comments across the bottom of the statements which mentioned that the loan term had decreased from 30 years to27 to 23 to 21. Honestly.
Awesome.

In those days we never would have dreamed that we could afford to invest, so we rampaged through the mortgage instead.

I was never aware of anyone I knew losing their homes.

 

[joanmc]

LOL Angel, when I reread my post it felt almost like that Monty Python skit- "we were soooo poor we lived in a shoebox"
I am glad we survived it but one of the couples we knew that lost their house also split up from the stress. Very sad.

 

[Angel]

Yes, it would be devastating.

We considered selling but the agents we spoke to (more than one) all stated that the selling costs would defeat the purpose. The stress of moving house with an undiagnosed autistic pre-schooler was far greater than the financial stress.